3rd Quarter 2010 Benefits Corner

Benefits Corner: A review of Dental, Health Insurance, Pension issues

by Al Horan

I can appreciate the controversy and anxiety that have been created by the new health care reform law - The Patient Protection and Affordable Care Act. Therefore, I prepared this article as a way to help us better understand what we might expect in the way of changes in our medical coverage and medical care in our country. Before getting into the law's details, I would like trying to help us better appreciate the issues and driving forces surrounding the need for change. Surprisingly, the concept of universal health insurance is not new. As early as 1798, the federal government enacted a law providing for the uniform treatment of sick and disabled seamen. Over time, other special interest laws were adopted. The idea of universal health coverage goes back to 1912 when President Theodore Roosevelt proposed it. Between 1912-2010, the concept also was raised by Presidents Franklin Roosevelt, Harry Truman, Richard Nixon, Bill Clinton and Barack Obama. However, in those intervening years, Medicare and Medicaid were adopted in 1965 under President Lyndon Johnson; COBRA was introduced in 1985 and The Medicare Catastrophic Coverage Act was repealed in 1988 by President Ronald Reagan; The Americans with Disabilities Act became law in 1990 under President George Bush; The Health Insurance Portability and Accountability Act was adopted in 1996 under President Clinton; and, in 2003 under George W. Bush, Medicare was expanded to cover prescription drugs. As you can see, universal health care insurance, and various laws affecting special interest groups, were either proposed or adopted under presidents who came from both major political parties.

Health care complex, expensive commodity

As pointed out in my Benefits Corner article in October 2009, the issue of health care is a very complex, expensive commodity. The cost of medical care has been increasing at a rate greater than inflation and has represented an increasing share of our Gross Domestic Product (GDP). Health care presently represents about 16 percent of our GDP. And if nothing were done to control accelerating costs, it would have risen to 25 percent of GDP by 2025. This problem of excessive increases in medical costs is not new. I remember this being a major problem 20 years ago when I represented Caltex on the Benefits Committee of the U.S. Chamber of Commerce. In discussions we had with The White House staff, they acknowledged and agreed with us that action was needed to curtail such rising medical costs. However, I personally believe that President George Bush was reluctant to move forward on addressing such increasing costs because of the embarrassment suffered by the Reagan Administration in 1988 when The Medicare Catastrophic Coverage Act was repealed. In my October 2009 article, I mentioned that the primary problem with medical care relates to its inefficiency, questionable quality and high cost. Ultimately, inefficiency and dubious quality translate to increased cost as well. I feel that, while far from perfect, the new law attempts to address most of those issues.

Two of the Annual Meeting speakers were Al Horan, left, Benefits Committee Chair, and Kevin O'Brien, assistant vice president, HDH. The changes pertain to medical, prescription drug and administration costs, conflicts of interest, the cost of the uninsured and underinsured, etc. I believe it also takes the necessary steps to address the long-term problem with medical care by introducing and emphasizing preventative care and wellness. Instead of being reactive for the first time, we will be proactive. The bill also provides for continuation of employer-sponsored medical insurance. And, in some cases, it mandates that employers make available medical insurance to its workers. Currently, employer-sponsored health insurance covers 177 million Americans, which represents approximately 88 percent of all individuals with private insurance. Addressing issues of high cost Regarding Medicare: I understand that over time we will see changes to address the issues of high costs, inefficiencies and the quality and type of care delivered by the medical community. In the near term, however, anyone who has elected a Medicare Advantage Plan within the general health care market - instead of standard Medicare coverage and supplemental coverage under a Chevron Medical Plan - will see the following:

 A $250 rebate in 2010 for prescription drugs

 A 50 percent discount on brand-name drugs in 2011

 Starting in 2012, the government will begin reducing its subsidies to Medicare Advantage Plans, a reduction which may impact Chevron's Medical Plans.

In 2020 the doughnut hole is expected to narrow whereby the government will cover 75 percent of the cost of prescription drugs.

No major impact on Chevron retirees

Now, turning to our Chevron Medical Plan coverage. Based on my initial reading of the law and research, I do not believe that the provisions of the Patient Protection and Affordable Care Act will have a major impact on Chevron retirees. In the case of excise tax on high-cost plans, this is expected to have minimal impact on Chevron plans that may fall into this category. With respect to other provisions of the law, many of them only take effect in a few years. Additionally, in the case of Chevron's standard medical plans that are offered to pre-age 65 and postage 65 retirees, we may see some of these changes introduced into our retiree plans even though many provisions only are required to be made to active employee plans. Furthermore, it is my belief that, beginning in 2014, the lifetime maximum of $5 million may be eliminated. In other words, coverage will be unlimited. Also, if anyone has an adult child covered by their insurance, that individual may be continued until age 26. I believe, too, that we will see the plans modified to cover preventative care and to the extent any annual limitations apply to essential health benefits, we may see them eliminated - subject, of course, to rules, regulations and timing that will be established by the government. It's much too early to tell what other changes, if any, we might expect.

Cost reductions are possible over time

I feel that, through cost controls initiated by the government over time, we should see a reduction in our medical plan contributions. (Please note the change to unlimited coverage should have very little, if any, effect on plan costs. And while preventative care may initially increase plan costs, ultimately it should reduce costs.) I am sure that, at the appropriate time, we will hear officially from Chevron. Typically, it takes time for the government to issue final rules and regulations which are generally necessary to make the required modifications to company medical plans.

Finally, as you know, the Patient Protection and Affordable Care Act will require almost everyone to have health insurance. The idea of extending coverage to everyone is not new. As you can see from the above, the idea of universal coverage has been around a long time. When I was involved with the Chamber of Commerce, various parties - generally from the legislative branch of government - would raise this point with us. However, I must say that in those days they were talking about providing coverage for people who could not afford to pay for the coverage themselves. Obviously, the Chamber was concerned about industry being saddled with any increased operating costs that through government mandates would directly or indirectly impact them. While I can see a similarity to the change brought about by the new law I must say that, for the first time, not only indigent but non-indigent individuals would be required to carry insurance. Also, rather than being handled in piecemeal fashion, it is being combined with and being made subject to the overall medical cost controls. Indigent already receiving emergency care As mentioned in my October article, the indigent already are receiving emergency care. The cost of the care is typically absorbed by other patients through the practice of balance billing. Universal coverage should address balance billing but we should be aware that it could result in increased usage because of pent-up demand. We saw this happen in the 1960s when Medicare was introduced. Although mandatory insurance may be repugnant to some people, from purely an insurance perspective it assures the viability of the program and it provides for a spread of risk. In other words, the larger the pool and the larger the number of healthy individuals covered in the pool, the lower the capitated cost. While healthy people could argue that they shouldn't have to support unhealthy individuals there is no guarantee that they will remain healthy. If they should become seriously ill, except for the super-wealthy, self-insurance is not a viable alternative. To the extent there is a short-fall, the burden would fall on society. In the case of insurance it is based on the law of large numbers. And, with a universal base, any element of gambling would be eliminated. Simply, if only sick people carried insurance it wouldn't be long before the insurance companies would go out of business or individuals would be unable to afford the cost of coverage. Health insurance is a commodity and it is strictly a cost-plus arrangement.

Cost changes 20 years overdue

As I wrote in my opening paragraph, I can well understand and appreciate the apprehensiveness and anxiety being felt by many people. Change is difficult and some change can even be more difficult. This is true in the case of medical cost and coverage, which are at least 20 years overdue. However, as previously mentioned, medical cost controls are necessary and should have been initiated long ago.

Inaction has been perilous.

I do not feel the new law is a panacea. But it is a start. Many of these comments also are shared by other benefits experts. For example, in a report prepared by Hewitt Associates, a large, respected benefits consultant, in September 2009 for the Business Roundtable it offered the following forecast:

1. The current annual health care cost of $11,000 per employee will triple to $29,000 in ten years unless significant marketplace reforms are adopted to reduce costs, expand coverage and improve delivery of medical care.

2. Runaway costs, combined with a $56-billion cost shift for the uninsured, would cripple the employer-based system that currently provides coverage for the majority of Americans and their families.

3. If nothing changes, by 2019 total health care spending will reach $4.4 trillion, consuming more than 20 percent of GDP.

5. As we look to expand coverage and improve the health of ALL Americans, we must accomplish this worthy goal in a way that preserves, strengthens and stabilizes our existing employer-based coverage.

In closing, thank you for reading this article. I would also like to mention that, short of going back to our old system of medical care, you may wish to write your Congressman about specific provisions of the law if we see they are not operating correctly. In this way, we all can become part of the solution.

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